The statistics behind Air Passenger Duty: What it is, why it was introduced and its effect on the economy

As the Scottish Government launches it bid to scrap Air Passenger Duty with a new Air Departure Tax, Insider researcher Steven Wilson examines the stats behind APD and why it's become such a revenue raiser

As Scottish ministers consider replacing Air Passenger Duty (APD) with a new Air Departure Tax from April 2018, we examine what APD is all about and why it is such a revenue raiser for Government.

What is Air Passenger Duty?

Air Passenger Duty (APD) is an excise duty which is charged on the carriage of passengers flying from a United Kingdom or Isle of Man airport on an aircraft that has an authorised take-off weight of more than ten tonnes or more than twenty seats for passengers.

It takes distance into account, making long distance flying significantly more expensive.

What is its effect?

APD was introduced in 1994 as a tax to pay for the environmental costs of air travel, with the rise in the tax in 2007 forecast by the Treasury to cut carbon dioxide emission by around 300k tonnes a year by 2010.

The idea is that the tax makes passengers think twice before flying, with a survey conducted by World Travel Market concluding that 45 per cent of people surveyed in 2010 discouraged from flying as a result. The tax raises about £3bn in revenue every year.

In early 2012, The World Travel & Tourism Council undertook research to understand the economic impact of APD on the UK’s GDP and employment.

The research indicated that the impact is significant and that removing Air Passenger Duty would result in an additional 91,000 British jobs being created and £4.2bn added to the economy in 12 months.

Effects of an APD Abolition on UK Tax Revenue

Analysis carried out by PwC in 2013

In 2013 a study by PwC found that abolition of APD could provide an initial short-term boost to the level of UK GDP of around 0.45 per cent in the first 12 months.

It stated that this increase would permanently raise UK economic output, to the point where the economy could be up to £16bn larger in the period 2013-15 than under the current system of APD.

In addition, it found that abolition would result in an increase in investment and exports, implying investment may rise by 6% in total between 2013 and 2015, with exports rising by 5% in the same period.

Almost 60,000 jobs could be created between 2013 and 2020, and although the abolition of APD would result in £3-4bn in lost revenue to the Treasury, PwC’s "cautious" analysis suggests that this would be offset by increased receipts from other taxes.

The report concludes that this would lead to a positive net gain of £0.25bn per annum for the Government, or in other words, that abolishing APD could pay for itself, though increased Government revenue from other sources primarily due to business growth achieved through the benefits brought by abolishing APD.

Economic Impacts on GVA of a 50% APD Reduction

Calculated by Edinburgh Airport (2015)

A 2015 report from Edinburgh Airport suggested that a 50 per cent reduction in Air Passenger Duty would create 3,800 jobs by 2020, whilst stimulating £200m of economic benefits a year.

The report also found that a failure to reduce the tax could see the country lose out on a million passengers a year, costing the economy up to £68m in lost tourism expenditure.